FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the year ended December 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period ________________________ to ________________________
Commission File Number 33-24235
SECURED INVESTMENT RESOURCES FUND, L.P. III
(Exact name of registrant as specified in its charter)
Missouri 48-6291172
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1100 Main, Suite 2100 Kansas City, Missouri 64105
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, (816) 421-4670
including area code)
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Limited Partnership Interests ("Units")
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or such shorter periods that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes ___ No X
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K, is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
1
<PAGE>
PART I
Item 1. Business
Secured Investment Resources Fund, L.P. III ("Partnership") is a Missouri
limited partnership formed pursuant to the Missouri Revised Uniform Limited
Partnership Act on April 20, 1988. SIR Partners III, L.P., a Missouri limited
partnership, Nichols Resources Ltd., a Missouri corporation and James R. Hoyt,
an individual, are the General Partners. James R. Hoyt is the Managing General
Partner. The Partnership has no predecessors or subsidiaries.
On July 31, 1998, Nichols Resources, Ltd., a General Partner, filed Form
8-K with the SEC describing a Settlement Agreement and Mutual Release between
James R. Hoyt, Managing General Partner; SIR Partners III, L.P., a General
Partner and Nichols Resources, Ltd., also a General Partner. Under terms of the
agreement, James R. Hoyt and SIR Partners III have agreed to withdraw as General
Partners of the partnership (as described in item 12). This settlement is
expected to have a positive future impact on the Partnership.
The Partnership was formed to engage in the business of acquiring,
improving, developing, operating and holding for investment income producing
real properties with the objectives of (i) preserving and protecting the
Partnership's capital; (ii) providing cash distributions from operations; (iii)
providing capital growth through property appreciation of Partnership
properties; and (iv) increasing equity in property ownership by the reduction of
mortgage loans on Partnership properties.
On December 7, 1990, the Partnership closed its offering having received
gross proceeds of $4,842,500 from the sale of 9,685 units of limited partnership
interests.
The Partnership acquired two apartment communities in 1989. The General
Partners feel that these properties met the Partnership's investment criteria
and objectives. Because of many factors, the Partnership did not raise the level
of capital anticipated. Accordingly, the General Partners were unable to obtain
the targeted leveraged ratio and a residential/commercial property mix.
As of December 31, 1997, the Partnership has made cash distributions to
Limited Partners of $363,928 for the period April 1, 1989 through December 31,
1997. No distributions have been made since July 1990. Future distributions will
only be made from excess cash flow not needed for working capital reserves.
As of December 31, 1997, the Partnership had no employees. Employees of
SPECS, Inc. provide services to the Partnership. James R. Hoyt, a General
Partner, is a shareholder in SPECS, Inc.
2
<PAGE>
Item 1. Business--Cont'd.
As of December 31, 1997, the Partnership was in negotiation with the
mortgage holder on KC Club Apartments concerning a restructure of that debt.
More favorable interest rates and possible principal write downs were under
consideration. Due to the inability to restructure the debt, on January 7, 1998
the property was lost to foreclosure (as described in Note L).
Competition
The real estate business is highly competitive and the Partnership competes
with numerous entities engaged in real estate activities, some of which may have
greater financial resources than those of the Partnership. The Partnership's
management believes that success against such competition is dependent upon the
geographic location of the property, the performance of property managers, the
amount of new construction in the area and the maintenance and appearance of the
property. With respect to residential property, competition is also based upon
the design and mix of the units and the ability to provide a community
atmosphere for the tenants. The Partnership's management believes that general
economic circumstances and trends and new properties in the vicinity of each of
the Partnership's properties will also be competitive factors.
Inflation
The effects of inflation on the Partnership's operations or investments are
not quantifiable. Revenues from property operations fluctuate proportionately
with increases and decreases in housing costs. Fluctuations in the rate of
inflation also affect the sales values of properties and, correspondingly, the
ultimate gains to be realized by the Partnership from property sales.
Item 2. Properties
The following table sets forth the investment portfolio of the Partnership
at December 31, 1997:
Average
Properties at Occupancy(*)
Property Description Initial Cost Date Acquired Percentage
1997 1996
KC Club Apartments
Kansas City, MO 200 units $ 5,070,992 June 14, 1989 84% 88%
Greenhills Bicycle
Club Apartments
Kansas City, MO 312 units $11,251,613 Oct. 27, 1989 91% 91%
(*) Based upon vacancy amount (in dollars) as a percent of gross possible rents.
The encumbrances against each property are described in Note C.
3
<PAGE>
Item 3. Legal Proceedings.
As of December 31, 1997, the Partnership was in negotiations with the
mortgage holder on KC Club Apartments concerning a restructure of that debt.
More favorable interest rates and possible principal write downs were under
consideration. Due to the inability to restructure the debt, on January 7, 1998
the property was lost to foreclosure.
The assets and liabilities as of December 31, 1997 that were applicable to
the foreclosed property approximated the following:
Investment properties, net of accumulated depreciation $3,388,000
Other assets 84,000
Mortgage payable, including accrued interest (3,992,000)
Other liabilities (259,000)
Rental revenue for the KC Club Apartments for the year ended December 31,
1997 was $853,000 while operating expenses (including interest) were $1,160,000.
Item 4. Submission of Matters to a Vote for Security Holders.
None
PART II
Item 5. Market for Registrant's Common Equity and Related Security Holder
Matters
(A) There is no established public trading market for the Units of the
Partnership. (B) There have been no distributions the last three years. (C ) As
of December 31, 1997, the Partnership had admitted 539 Limited Partners who
purchased 9,685 units.
(The remainder of this page intentionally left blank.)
4
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<TABLE>
Item 6. Selected Financial Data,
<CAPTION>
OPERATING DATA
(In Thousands) 1997 1996 1995 1994 1993
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Rents ...................... $ 2,791 $ 2,768 $ 2,697 $ 2,299 $ 2,261
Interest and earnings on
investments .............. 196 90 128 106 103
Property operating
expense .................. 1,473 1,504 1,560 1,454 1,260
Interest expense ........... 1,113 1,126 925 931 974
Depreciation/
Amortization ............ 605 606 512 648 711
-------- -------- -------- -------- --------
Partnership Loss ........... (204) (378) (172) (628) (581)
======== ======== ======== ======== ========
PER LIMITED PARTNERSHIP UNIT
Partnership Loss (1) ....... $ (20.87) $ (38.64) $ (17.54) $ (64.23) $ (59.39)
======== ======== ======== ======== ========
Cash Distribution .......... $ -- $ -- $ -- $ -- $ --
======== ======== ======== ======== ========
<CAPTION>
BALANCE SHEET DATA
(In Thousands) 1997 1996 1995 1994 1993
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Total Assets ............... $ 11,617 $ 12,749 $ 13,223 $ 14,227 $ 14,779
Mortgage Debt .............. $ 12,344 $ 12,931 $ 12,851 $ 13,737 $ 13,770
<FN>
(1) Partnership loss per limited partnership unit is computed by dividing
loss allocated to the Limited Partners by the weighted average number of limited
partnership units outstanding (9,685 units for each period).
</TABLE>
5
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Results of Operations-Cont'd
Revenue for the Partnership increased in 1997 to $2,987,000 compared to
$2,858,000 (4.5%) in 1996. This increased revenue was the result of an increase
in gross possible rental rates. During 1997 the operating and administrative
costs decreased $31,000 (2.1%) primarily in the areas of services, payroll and
marketing.
Interest expense decreased from $1,126,000 in 1996 to $1,112,000 (1.2%) in
1997. Depreciation and amortization expense decreased from $606,000 to $605,000.
The 1997 net loss decreased by $174,000 (46.0%).
Revenue for the Partnership was $2,858,000 for 1996 as compared to
$2,825,000 (1.2%) in 1995. During 1996 the operating costs decreased $44,000
(3.4%) primarily in the areas of services, marketing, and payroll.
Interest expense increased from $925,000 in 1995 to $1,126,000 (21.7%) in
1996. Depreciation and amortization increased from $512,000 to $606,000 (18.3%).
The 1996 net loss increased by $206,000 (120.3%).
Total expenses decreased $56,000 (3.5%) for 1996 operations compared to
1995 results. The decrease in expenses was primarily due to a decrease in
administrative, marketing, and payroll costs.
The Partnership anticipates that 1998 operations will improve as the result
of the foreclosure of the KC Club Apartments and of planned increases in rental
rates and decreased promotional rental incentives at the Greenhills Bicycle Club
Apartments. This planned increase in net rental income will be coupled with a
close monitoring of costs.
Due to the inability to renegotiate loan terms with the lender, the KC Club
Apartments was foreclosed in 1998. It is anticipated that this will result in a
decrease in revenue with a corresponding decrease in expenses. The 1997 rental
revenue for the KC Club was $853,000 and expenses (including interest) were
$1,160,000.
Liquidity and Sources of Capital
During 1997, the primary source of working capital was provided by
investing activities in the amount of $887,000. Operations used $59,000, and
financing activities used $594,000. During the year accounts payable and accrued
expenses increased by $56,000 and accrued interest decreased by $386,000.
6
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Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Liquidity and Sources of Capital - Cont'd
As a result of declining cash flows for KC Club Apartments, on August 1,
1997, the certificate of accrual (as described in note D) was sold. The proceeds
of $1,083,000 were used to pay $553,000 of accrued interest and $530,000 of
delinquent principal on the property. The cash generated from operations for
that property was insufficient to service the mortgage under the existing
payment requirements. The General Partner had ongoing negotiations with the
lender concerning a complete restructure of the mortgage and related debt
service. The negotiations were unsuccessful and on January 7, 1998 the property
was lost to foreclosure.
During 1996, the primary source of working capital was provided by existing
cash balances. Operations provided $49,000, investing activities consumed
$207,000, and financing activities used $246,000. During 1996 accounts payable
and accrued expenses decreased $339,000 and accrued interest payable increased
by $142,000.
On July 8, 1996 the Partnership refinanced the matured $8,400,000 first
mortgage on Greenhills Bicycle Club Apartments. The terms of the new mortgage
are $8,100,000 at 9.0% interest with monthly principal and interest payments in
the amount of $65,000 through the loan maturity date of August 1, 2001 (5
years).
In addition, a second mortgage note was signed by the Partnership. The
terms of the note were $400,000 with interest paid monthly at the rate of 9%
with a maturity date of July 31, 2001 at which time the principal shall be due.
The note can be prepaid at a discount. The past due real estate taxes on
Greenhills Bicycle Club Apartments were paid in full from a portion of the
proceeds of this note.
The funds advanced by the Partnership to Secured Investment Resources Fund,
L.P. began to be repaid, including 9% interest, in May, 1995. No principal or
interest payments were received in 1997, while interest accrued into the note
balance was $7,349.
As a result of the foreclosure of the KC Club Apartments, the liquidity and
financial condition of the Partnership is expected to improve. The cash
generated from operations for the KC Club Apartments was insufficient to service
the mortgage on the property. The 1997 Net Operating Income after interest
expense of the remaining property, The Greenhills Bicycle Club Apartments, was
$395,000.
7
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
One Time Gain on Sale of Investment
The Partnership recorded a one time gain on the sale of an investment of
$114,531. The Certificate of Accrual (as described in Note D.) was sold on
August 1, 1997 for $1,083,068. The recorded value of the Certificate of Accrual
was $968,537, resulting in a one time gain on the sale of $114,531.
Year 2000
The Partnership is currently dependant upon the General Partners and SPECS,
Inc. ("SPECS") for management and administrative services. It is anticipated
that the General Partners and SPECS will have to modify or replace portions of
their software so that the computer systems will function properly with respect
to dates in the year 2000 and thereafter (the "Year 2000 Issue"). The project is
estimated to be completed no later than January, 1999. It is anticipated that
SPECS will install a Year 2000 compliant software system at the property by that
date. The cost of the conversion is not anticipated to be material. The general
partners believe that with modifications to existing software and conversion to
new software, the Year 2000 Issue will not pose significant operational problems
for its computer systems. The General Partners also believe that if such
conversions are not made, or are not completed timely, the Year 2000 issue would
not have a material impact on the operations of the Partnership.
Inflation
The effects of inflation on the Partnership's operations or investments are
not quantifiable. Revenues from property operations fluctuate proportionately
with increases and decreases in housing costs. Fluctuations in the rate of
inflation also affect the sales values of properties and, correspondingly, the
ultimate gains to be realized by the Partnership from property sales.
New Accounting Standards
SFAS No. 130, "Reporting Comprehensive Income," was issued in June 1997.
Comprehensive income is defined as net income plus certain items that are
recorded directly to shareholders' equity, such as unrealized gains and losses
on available-for-sale securities. Components of comprehensive income will be
included in a financial statement that has the same prominence as other
financial statements starting in the first quarter of fiscal 1999. SFAS No.
130's disclosure requirements will have no impact on the Partnership's financial
condition or results of operations.
8
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
New Accounting Standards - Cont'd.
SFAS No. 131, "Disclosure about Segments of an Enterprise and Related
Information," is effective for financial statements for periods beginning after
December 15, 1997, but interim reporting is not required in 1998. An operating
segment is defined under SFAS No. 131 as a component of an enterprise that
engages in business activities that generate revenue and expense for which
operating results are reviewed by the chief operating decision maker in the
determination of resource allocation and performance. The Partnership
anticipates no impact of SFAS No. 131 on future financial statement disclosures.
In April 1998, the Accounting Standards Executive Committee issued
Statement of Position 98-5 "Reporting on the Costs of Start-Up Activities." SOP
98-5 provides guidance on the financial reporting of start up costs and
organization costs. It requires costs of start-up activities and organization
costs to be expensed as incurred. The SOP broadly defines start-up activities
and provides examples to help entities determine what costs are and are not
within the scope of this SOP. The SOP applies to all nongovernmental entities
and, in general, is effective for financial statements for fiscal years
beginning after December 15, 1998.
The Partnership is not in its start-up phase and thus does not expect this
SOP to have a significant effect on its financial statement when it becomes
effective.
In June 1998, the Financial Accounting Standards Board Issued SFAS 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS 133
requires companies to recognize "all" derivatives contracts as either assets or
liabilities in the balance sheet and to measure them at fair value. If certain
conditions are met, a derivative may be specifically designated as a hedge, the
objective of which is to match the timing of gain or loss recognition on the
hedging derivative with the recognition of (i) the changes in the fair value
of the hedged asset or liability that are attributable to the hedged risk or
(ii) the earnings effect of the hedged forecasted transaction. For a derivative
"not" designated as a hedging instrument, the gain or loss is recognized in
income in the period of change. SFAS 133 is effective for all fiscal quarters
of fiscal years beginning after June 15, 1999.
Historically, the Partnership has not entered into derivatives contracts
either to hedge existing risks or for speculative purposes. Accordingly, the
Partnership does not expect adoption of the new standard on January 1, 2000 to
affect its financial statements.
9
<PAGE>
Item 8. Financial Statements and Supplementary Data
SECURED INVESTMENT RESOURCES FUND, L.P. III
Index
Page
Independent Auditors' Report 11
Financial Statements:
Consolidated Balance Sheets - December 31, 12-13
1997 and 1996
Consolidated Statements of Operations -
Years ended December 31, 1997, 1996 and 1995 14
Consolidated Statements of Partnership Deficit
Years ended December 31, 1997, 1996 and 1995 15
Consolidated Statements of Cash Flows -
Years ended December 31, 1997, 1996 and 1995 16-17
Notes to Consolidated Financial Statements 18-27
10
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Partners
Secured Investment Resources Fund, L.P. III
Mission, KS
We have audited the accompanying consolidated balance sheets of Secured
Investment Resources Fund, L.P. III and affiliated companies as of December 31,
1997 and 1996, and the related statements of operations, partnership deficit and
cash flows for each of the three years in the period ended December 31, 1997. We
have also audited the schedules listed in the accompanying index. These
financial statements and schedules are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements and schedules based upon our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and schedules are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements and
schedules. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
presentation of the financial statements and schedules. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Secured
Investment Resources Fund, L.P. III at December 31, 1997 and 1996, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1997 in conformity with generally accepted
accounting principles.
Also in our opinion, the schedules present fairly, in all material
respects, the information set forth therein.
s/ BDO Seidman LLP
St. Louis, Missouri
February 6, 1998
11
<PAGE>
SECURED INVESTMENT RESOURCES FUND, L.P. III
CONSOLIDATED BALANCE SHEETS
December 31,
1997 1996
------------ ------------
ASSETS
INVESTMENT PROPERTIES (Notes B and C)
Land and buildings ........................ $ 14,591,003 $ 14,569,699
Furniture, fixtures and equipment ......... 1,516,980 1,471,943
------------ ------------
16,107,983 16,041,642
Less accumulated depreciation ........... (5,273,994) (4,732,073)
------------ ------------
10,833,989 11,309,569
RESTRICTED DEPOSITS
Certificate of Accrual on
Treasury Security (Notes C and D) -- 898,023
Restricted Reserve Fund ......... 93,553 34,490
------------ ------------
93,553 932,513
Cash .................................. 317,315 82,985
Rents and other receivables, less
allowance for doubtful accounts
of $16,200 in 1997 and
$12,000 in 1996 ..................... 7,347 5,106
Prepaid expenses and deposits .......... 30,695 29,161
Due from related parties (Notes F and G)
Notes receivable ..................... 85,694 78,345
Syndication costs .................... 21,751 21,751
Debt issuance costs, net of
accumulated amortization of
$94,880 in 1997 and $31,627
in 1996 .............................. 226,659 289,913
------------ ------------
689,461 507,261
------------ ------------
TOTAL ASSETS ......................... $ 11,617,003 $ 12,749,343
============ ============
See notes to consolidated financial statements.
12
<PAGE>
SECURED INVESTMENT RESOURCES FUND, L.P. III
CONSOLIDATED BALANCE SHEETS--CONT'D
December 31,
1997 1996
------------ ------------
LIABILITIES AND PARTNERSHIP DEFICIT
Mortgage debt (Note C) ...................... $ 12,344,460 $ 12,931,003
Accounts payable and accrued expenses --
(Note H) ................................. 300,653 244,253
Accrued interest .............................. 141,133 527,106
Unearned revenue ........................... 14,449 30,360
Tenant security deposits ................... 105,913 102,050
------------ ------------
TOTAL LIABILITIES .......................... 12,906,608 13,834,772
------------ ------------
PARTNERSHIP DEFICIT
General Partners
Capital contributions .................... 2,000 2,000
Partnership deficit ...................... (52,051) (50,009)
------------ ------------
(50,051) (48,009)
------------ ------------
Limited Partners
Capital contributions .................. 3,915,084 3,915,084
Partnership deficit .................... (5,154,638) (4,952,504)
------------ ------------
(1,239,554) (1,037,420)
------------ ------------
TOTAL PARTNERSHIP DEFICIT ..................... (1,289,605) (1,085,429)
------------ ------------
TOTAL LIABILITIES & PARTNERSHIP DEFICIT .... $ 11,617,003 $ 12,749,343
============ ============
See notes to consolidated financial statements.
13
<PAGE>
<TABLE>
SECURED INVESTMENT RESOURCES FUND, L.P. III
CONSOLIDATED STATEMENTS OF OPERATIONS
<CAPTION>
Years Ended December 31,
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
REVENUES
Rents .......................... $ 2,790,617 $ 2,767,870 $ 2,697,035
Interest and other investment
income ..................... 196,127 90,428 128,763
----------- ----------- -----------
2,986,744 2,858,298 2,825,798
----------- ----------- -----------
OPERATING AND ADMINISTRATIVE
EXPENSES
Property operating
expenses ................... 1,189,480 1,177,374 1,222,240
General and
administrative
expenses ................... 54,526 70,752 70,672
Professional services (Note E) 91,873 118,896 136,955
Management fees (Note E) ..... 137,445 137,449 130,229
----------- ----------- -----------
1,473,324 1,504,471 1,560,096
----------- ----------- -----------
NET OPERATING INCOME ......... 1,513,420 1,353,827 1,265,702
NON-OPERATING EXPENSES
Interest ..................... 1,112,421 1,126,256 925,019
Depreciation and
amortization ............... 605,175 605,578 512,242
----------- ----------- -----------
1,717,596 1,731,834 1,437,261
----------- ----------- -----------
PARTNERSHIP LOSS ........................ $ (204,176) $ (378,007) $ (171,559)
=========== =========== ===========
Allocation of loss
General Partners ............. $ (2,042) $ (3,780) $ (1,715)
Limited Partners ............. (202,134) (374,227) (169,844)
----------- ----------- -----------
$ (204,176) $ (378,007) $ (171,559)
=========== =========== ===========
Partnership loss per
limited partnership unit
$ (20.87) $ (38.64) $ (17.54)
=========== =========== ===========
See notes to consolidated financial statements.
</TABLE>
14
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SECURED INVESTMENT RESOURCES FUND, L.P. III
CONSOLIDATED STATEMENTS OF PARTNERSHIP DEFICIT
Years Ended December 31, 1997, 1996 and 1995
General Limited
Partners Partners Total
Balances at January 1, 1995 ...... $ (42,514) $ (493,349) $ (535,863)
Partnership loss ................. (1,715) (169,844) (171,559)
----------- ----------- -----------
Balances at December 31, 1995 .... (44,229) (663,193) (707,422)
Partnership loss ................. (3,780) (374,227) (378,007)
----------- ----------- -----------
Balances at December 31, 1996 .... (48,009) (1,037,420) (1,085,429)
Partnership loss ................. (2,042) (202,134) (204,176)
----------- ----------- -----------
Balances at December 31, 1997 .... $ (50,051) $(1,239,554) $(1,289,605)
=========== =========== ===========
See notes to consolidated financial statements.
15
<PAGE>
<TABLE>
SECURED INVESTMENT RESOURCES FUND, L.P. III
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
Years Ended December 31,
1997 1996 1995
<S> <C> <C> <C>
OPERATING ACTIVITIES
Partnership loss (204,176) (378,007) $ (171,559)
Adjustments to reconcile
partnership loss to net
cash provided by (used in)
operating activities:
Depreciation and
amortization 605,175 605,578 512,242
Gain on sale of certificate of
accrual on Treasury security (114,531) -- --
Provision for losses on rents
and other receivables 4,200 4,850 (664)
Changes in assets
and liabilities:
Rent and other receivables (6,441) (6,171) 48,063
Prepaid expenses and deposits (1,534) (1,992) 22,148
Accounts payable and
accrued expenses 56,400 (339,486) (12,170)
Accrued interest (385,973) 141,726 240,385
Unearned revenue (15,911) 2,881 17,520
Tenant security deposits 3,863 19,840 9,751
--------- ---------- ----------
NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES (58,928) 49,219 665,716
INVESTING ACTIVITIES
Improvements to investment properties (66,341) (102,145) (164,484)
Interest earned on certificate
of accrual on Treasury security (70,514) (70,514) (64,978)
Proceeds from sale of certificate of
accrual on Treasury security 1,083,068 -- --
Restricted deposits (59,063) (34,490) --
---------- ---------- ----------
NET CASH PROVIDED BY
(USED IN) INVESTING ACTIVITIES 887,150 (207,149) (229,462)
---------- ---------- ----------
</TABLE>
16
<PAGE>
<TABLE>
SECURED INVESTMENT RESOURCES FUND, L.P. III
CONSOLIDATED STATEMENTS OF CASH FLOWS--CONT'D
<CAPTION>
Years Ended December 31,
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
FINANCING ACTIVITIES
Debt issuance costs ......................... $( -- ) $(321,890) $ (235)
Borrowings (payments) on debt ............... (586,543) 79,621 (14,669)
Received from related parties .......... -- -- 18,879
Note receivable from related parties ... (7,349) (3,702) (98,080)
--------- --------- ---------
NET CASH USED IN
FINANCING ACTIVITIES ............................ (593,892) (245,971) (94,105)
--------- --------- ---------
INCREASE/(DECREASE) IN CASH ..................... 234,330 (403,901) 342,149
CASH BEGINNING OF PERIOD ........................ 82,985 486,886 144,737
--------- --------- ---------
CASH END OF PERIOD .............................. $ 317,315 $ 82,985 $ 486,886
========= ========= =========
See notes to consolidated financial statements.
</TABLE>
17
<PAGE>
SECURED INVESTMENT RESOURCES FUND, L.P. III
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A--SIGNIFICANT ACCOUNTING POLICIES
Organization and Business--Secured Investment Resources Fund, L.P. III
("Partnership") is a Missouri limited partnership formed pursuant to the
Missouri Revised Uniform Limited Partnership Act on April 20, 1988. The
Partnership has invested in two apartment complexes in the Metropolitan Kansas
City Missouri area. It extends unsecured credit, subject to security deposits,
to its tenants in both complexes. Tenant leases are generally subject to annual
renewals. The General Partners' and Limited Partners' interest in Partnership
earnings or loss initially amounts to 1% and 99%, respectively. The allocation
of the 1% interest between the General Partners is discretionary. At such point
in time cash distributions to the Limited Partners amount to their original
invested capital plus interest at a rate of the greater of 12% (14% for those
investors who subscribed for units on or before 90 days after December 7, 1988)
or the increase in the consumer price index per annum, cumulative non-compounded
on their adjusted invested capital, net income or loss will be allocated 15% to
the General Partners and 85% to the Limited Partners.
Consolidated Limited Partnerships--To satisfy the lender's requirements
that real estate assets be in single asset partnerships, in 1996 the Partnership
formed a new single asset partnership by the name of Bicycle Club Joint Venture,
L.P. The Partnership retained the same partnership structure as Secured
Investment Resources Fund, L.P. III, with Secured Investment Resources Fund,
L.P. III being the sole Limited Partner. The result of operations of this single
asset partnership have been consolidated with the Partnership.
Depreciation--Investment property is depreciated on a straight-line basis
over the estimated useful life of the property (30 years for buildings and 5
years for furniture, fixtures and equipment). Improvements are capitalized and
depreciated over their estimated useful lives. Maintenance and repair expenses
are charged to operations as incurred.
Income Taxes--Any tax liabilities or benefits arising from the Partnership
operations are recognized individually by the respective partners and,
consequently, no provision will be made by the Partnership for income taxes or
income tax benefits.
Partnership Loss Per Limited Partnership Unit--Partnership loss per limited
partnership unit is computed by dividing the loss allocated to the Limited
Partners by the weighted average number of limited partnership units sold. The
per unit information has been computed based on 9,685 weighted average limited
partnership units outstanding.
18
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-- CONT'D.
NOTE A--SIGNIFICANT ACCOUNTING POLICIES-- CONT'D.
Debt Issuance Cost--Loan costs, when incurred, are capitalized by the
Partnership. These costs are amortized over the term of the related loans.
Restricted Deposits--Certificates of Accrual on Treasury Security were sold
August 1, 1997. (As described in note D) These instruments are reported at cost,
adjusted for accretion of discounts which approximates market. The accretion
adjustment is recognized in interest income using the interest method over the
period to maturity.
Accounting Estimates--The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statement and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
New Accounting Standards-SFAS No. 130, "Reporting Comprehensive Income,"
was issued in June 1997. Comprehensive income is defined as net income plus
certain items that are recorded directly to shareholders' equity, such as
unrealized gains and losses on available-for-sale securities. Components of
comprehensive income will be included in a financial statement that has the same
prominence as other financial statements starting in the first quarter of fiscal
1999. SFAS No. 130's disclosure requirements will have no impact on the
Partnership's financial condition or results of operations.
SFAS No. 131, "Disclosure about Segments of an Enterprise and Related
Information," is effective for financial statements for periods beginning after
December 15, 1997, but interim reporting is not required in 1998. An operating
segment is defined under SFAS No. 131 as a component of an enterprise that
engages in business activities that generate revenue and expense for which
operating results are reviewed by the chief operating decision maker in the
determination of resource allocation and performance. The Partnership
anticipates no impact of SFAS No. 131 on future financial statement disclosures.
In April 1998, the Accounting Standards Executive Committee issued
Statement of Position 98-5 "Reporting on the Costs of Start-Up Activities." SOP
98-5 provides guidance on the financial reporting of start up costs and
organization costs. It requires costs of start-up activities and organization
costs to be expensed as incurred. The SOP broadly defines start-up activities
and provides examples to help entities determine what costs are and are not
within the scope of this SOP. The SOP applies to all nongovernmental entities
and, in general, is effective for financial statements for fiscal years
beginning after December 15, 1998.
The Partnership is not in its start-up phase and thus does not expect this
SOP to have a significant effect on its financial statement when it becomes
effective.
19
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-- CONT'D.
NOTE A--SIGNIFICANT ACCOUNTING POLICIES-- CONT'D.
In June 1998, the Financial Accounting Standards Board Issued SFAS 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS 133
requires companies to recognize "all" derivatives contracts as either assets or
liabilities in the balance sheet and to measure them at fair value. If certain
conditions are met, a derivative may be specifically designated as a hedge, the
objective of which is to match the timing of gain or loss recognition on the
hedging derivative with the recognition of (i) the changes in the fair value of
the hedged asset or liability that are attributable to the hedged risk or (ii)
the earnings effect of the hedged forecasted transaction. For a derivative
"not" designated as a hedging instrument, the gain or loss is recognized in
income in the period of change. SFAS 133 is effective for all fiscal quarters of
fiscal years beginning after June 15, 1999.
Historically, the Partnership has not entered into derivatives contracts
either to hedge existing risks or for speculative purposes. Accordingly, the
Partnership does not expect adoption of the new standard on January 1, 2000 to
affect its financial statements.
NOTE B--INVESTMENT PROPERTIES
Investment properties consists of the following:
December 31,
1997 1996
----------- -----------
Cost (including capital improvements
subsequent to acquisition):
Greenhills Bicycle
Club Apartments .............................. $11,045,368 $10,988,697
KC Club Apartments ........................... 5,050,435 5,040,765
Office Equipment ............................. 12,180 12,180
----------- -----------
16,107,983 16,041,642
Less:
Accumulated depreciation ..................... 5,273,994 4,732,073
----------- -----------
$10,833,989 $11,309,569
Depreciation expense was $541,921, $529,408, and $507,242 for the years
ended December 31, 1997, 1996, and 1995 respectively.
20
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONT'D
NOTE C--NON-RECOURSE MORTGAGE DEBT
Non-recourse mortgage debt consists of the following:
December 31,
1997 1996
---------- -----------
Collateralized by Investment Property:
First Mortgages:
Greenhills Bicycle Club Apartments ........... $ 8,025,084 $ 8,082,102
KC Club Apartments ........................... $ 3,922,211 $ 4,451,382
Second Mortgage:
Greenhills Bicycle Club Apartments ........... $ 397,165 $ 397,519
----------- -----------
$12,344,460 $12,931,003
=========== ===========
KC Club Apartments
The KC Club Apartments' mortgage note payable is collateralized by the
apartment buildings, personal property and assignment of its leases and rents.
The interest rate for this mortgage as of December 31, 1997 was 8.45%.
As a result of declining cash flows for KC Club Apartments, on August 1,
1997, the certificate of accrual (as described in note D) was sold. The proceeds
of $1,083,000 were used to pay $553,000 of accrued interest and $530,000 of
delinquent principal on the property. The cash generated from operations for
that property was insufficient to service the mortgage under the current payment
requirements. The Managing General Partner had ongoing negotiations with the
lender concerning a complete restructure of the mortgage and related debt
service. The negotiations were unsuccessful and on January 7, 1998 the property
was lost to foreclosure. (See note L).
21
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONT'D
NOTE C--NON-RECOURSE MORTGAGE DEBT
Greenhills Bicycle Club Apartments
On July 8, 1996 the Partnership refinanced the matured first mortgage on
Greenhills Bicycle Club Apartments. The terms of the new mortgage are $8,100,000
at 9.0% interest with monthly principal and interest payments in the amount of
$65,000 through the loan maturity date of August 1, 2001.
In addition, a second mortgage note was signed by the Partnership. The
terms of the new note are $400,000 with interest paid monthly at the rate of 9%
with a maturity date of July 31, 2001 at which time the principal shall be due.
The past due real estate taxes on Greenhills Bicycle Club Apartments were paid
in full from a portion of the proceeds of this note.
Cash paid for interest totaled $1,498,393, $984,531, and $886,813 for the
years ended December 31, 1997, 1996, and 1995, respectively.
Maturities of mortgage debt are as follows:
1998 $3,984,578
1999 68,217
2000 74,616
2001 8,217,049
Thereafter 0
---------
$12,344,460
===========
NOTE D--LEASES
The Partnership entered into a land lease agreement for the land underlying
the KC Club Apartments for a term of twenty years. The lease payments for years
1 to 15 are calculated at 50% of that year's net operating income in excess of
an ascending scale from $650,000 to $800,000. During years 16 to 20, the annual
lease payments are 10% of the land's then appraised value. For the years ended
December 31, 1997, 1996 and 1995, the net operating income did not exceed the
land lease requirements which resulted in no lease payments. In addition, the
Partnership is obligated to pay real estate taxes assessed on the land value.
At all times during the term of the lease, the Partnership (or its
assignee) has the right to purchase the land at a price equal to the greater of
$2,000,000 or fair market value at the time the option is exercised. Should the
buildings and improvements be sold prior to the end of the land lease agreement
(20 years), the Partnership is under no obligation for payment of the land
rental assessments for the remaining portion of the land lease agreement.
The Partnership invested $500,000 (held as a Certificate of Accrual with a
market value of $1,037,000 as of December 31, 1996) which was pledged as
collateral until the property's net operating income achieves the level of 120%
of the debt service on the first mortgages for a consecutive 24-month
22
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONT'D
NOTE D--LEASES--CONT'D.
period or May 31, 2004, whichever is earlier. The Certificate of Accrual was
sold on August 1, 1997 for $1,083,000. The proceeds were used to pay $553,000 of
accrued interest and $530,000 of principal on the KC Club Apartments. The
property was subsequently lost to foreclosure on January 7, 1998.
NOTE E--RELATED PARTY--MANAGEMENT FEES
SPECS, Inc., a Kansas corporation in which James R. Hoyt, a general
partner, is a shareholder, receives property management fees for providing
property management services. SPECS, Inc. also performs various professional
services for the Partnership, primarily tax accounting, audit preparation, SEC
10-Q and 10-K preparation, and investor services. Amounts paid by the
Partnership to SPECS, Inc. are as follows:
1997 1996 1995
-------- -------- --------
Property Management Fee $137,445 $137,449 $130,229
Professional Services 42,707 45,335 44,000
-------- -------- --------
$180,152 $182,784 $174,229
======== ======== ========
The General Partners are entitled to receive a Partnership Management Fee
equal to 5% of Cash Flow From Operations (as defined) for managing the normal
operations of the Partnership. There was no management fee due for years ending
December 31, 1997, 1996 and 1995.
NOTE F--RELATED PARTY--NOTE RECEIVABLE
On April 12, 1995, the SIR Partners III, L.P. executed a note payable to
the Partnership in the amount of $522,004. Interest during 1995 was 9%. Interest
earnings for the note was $50,509 in 1995.
On December 28, 1995, the note principal and all accrued interest through
that date was retired in full pursuant to an assumption agreement between the
Partnership, SIR Partners III, and James R. Hoyt. In exchange for payment of the
note (and excess costs/fees described in Note G), the Managing General Partner
assumed full responsibility for the matured second mortgage on Greenhills
Bicycle Club Apartments. The Partnership was provided with an executed release
of the note and second deed of trust relating to the Greenhills mortgage.
23
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONT'D
NOTE F--RELATED PARTY--NOTE RECEIVABLE--CONT'D
Funds advanced to Secured Investment Resources Fund, L.P. are being repaid
beginning May 1, 1995 including 9% interest. No principal or interest payments
were received in 1997. Interest accrued on the note balance was $7,349.
Amounts due from related parties consist of the following:
December 31,
1997 1996
Secured Investment Resources ------ ------
Fund, L.P. ................................... $85,694 $78,345
NOTE G--SYNDICATION FEES AND ACQUISITION FEES
Because of many factors, the Partnership did not raise the level of capital
anticipated during the offering period. As a result, syndication and acquisition
costs and the Related Party Note Receivable, outlined in Note F, exceeded the
amount allowed per the Partnership Agreement. The General Partners are obligated
to reimburse these excess costs/fees. James R. Hoyt has agreed to reimburse the
excess costs/fees to the Partnership (as described in Item 11 (c)).
SIR Partners III, L.P., a General Partner of the Partnership (or its
assignee), has been paid an acquisition fee of $680,000. This fee was for
selecting, evaluating, negotiating, and closing services on the acquisition of
KC Club Apartments and Greenhills Bicycle Club Apartments. As stated in the
Prospectus, acquisition fees may not exceed 11.5% of the gross proceeds of
limited partnership interests issued ($556,888). The General Partners are
obligated to reimburse these excess costs/fees.
On December 28, 1995, the excess costs and fees were reduced to $21,751
pursuant to an assumption agreement between the Partnership, SIR Partners III,
and James R. Hoyt. In exchange for payment of the excess costs and fees (as well
as the note receivable described in Note F), the Managing General Partner
assumed full responsibility for the matured second mortgage on Greenhills
Apartments. The Partnership was provided with an executed release of the note
and second deed of trust relating to the Greenhills mortgage. Subsequent to
December 31, 1997, the remainder of the excess costs and fees was paid in full.
December 31,
1997 1996
General Partners--Excess ------ ------
Syndication Costs:
Paid by the Partnership .................... $21,751 $21,751
24
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONT'D
NOTE H--ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of the following:
December 31,
1997 1996
-------- --------
Vendor Accounts Payable .................... $ 19,601 $ 15,417
Property Taxes ............................. 198,901 127,938
Professional Fees .......................... 33,804 55,986
Utilities .................................. 25,713 25,054
Insurance .................................. 8,429 8,352
Payroll Reimbursement ...................... 14,205 11,506
-------- --------
$300,653 $244,253
======== ========
As of December 31, 1997, unpaid Property Taxes include $134,900 of delinquent
1995-96 taxes and $57,600 of 1997 taxes related to the KC Club Apartments.
NOTE I--INCOME TAXES
The Partners' capital accounts differ for financial reporting purposes and
federal income tax purposes. The primary differences result from depreciation.
The effect of these items is summarized as follows:
December 31,
1997 1996
Financial Reporting Basis: ------------ ------------
Total assets .............................. $ 11,617,003 $ 12,749,343
Total liabilities ......................... (12,906,608) (13,834,772)
------------ ------------
Total Partners' (deficit) capital ......... $ (1,289,605) $ (1,085,429)
============ ============
Tax Basis:
Total assets .............................. $ 12,000,633 $ 13,139,467
Total liabilities ......................... (11,798,061) (12,710,475)
------------ ------------
Total Partners' capital ................... $ 202,572 $ 428,992
============ ============
Years Ended December 31,
1997 1996 1995
--------- --------- ---------
Partnership loss-financial
reporting purposes ... $(204,176) $(378,007) $(171,559)
--------- --------- ---------
Book versus tax differences
due to:
Depreciation and
amortization ..... (10,694) (37,354) (57,303)
Other .............. (11,550) 8,821 27,037
--------- --------- ---------
(22,244) (28,533) (30,266)
--------- --------- ---------
Partnership loss-federal
income tax purposes .. $(226,420) $(406,540) $(201,825)
========= ========= =========
25
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONT'D
NOTE J--CASH DISTRIBUTIONS
No distributions have been made since July 1990. Future distributions will
only be made from excess cash flow not needed for working capital reserves.
NOTE K--PARTNERSHIP LIQUIDITY
The Partnership operates within the real estate industry and is subject to
its economic forces, which contributes additional liquidity risk to the
Partnership's investment portfolio. These risks include, but are not limited to,
changes in general or local economic conditions, changes in interest rates and
the availability of permanent mortgage financing which may render the
acquisition, sale or refinancing of the property difficult or unattractive,
changes in real estate and zoning laws, increases in real estate taxes, federal
or local economic or rent controls, floods, earthquakes and other acts of God
and other factors beyond the control of the Partnership's management. The
illiquidity of real estate investments generally may impair the ability of the
Partnership to respond promptly to changing economic conditions.
The General Partners believe that sufficient working capital will be
available to fund known, ongoing operating and capital expenditure requirements
of the Partnership during 1998. The anticipated working capital sources are
payments received on notes and miscellaneous receivables and cash flow from
operations during 1998, which is expected to improve over that of the previous
year. Several factors which could positively affect 1998 operations are the
implementation of rental rate increases and decreases in the amount of
promotional rent discounts allowed for the leasing of apartment units.
Accomplishment of these objectives is partially predicated on the real estate
economic conditions discussed above, which are beyond the control of the
Partnership, and will influence the achieved results.
As a result of the foreclosure of the KC Club Apartments (as described in
Note L), the liquidity and financial condition of the partnership is expected to
improve. The cash generated from operations for the KC Club Apartments was
insufficient to service the mortgage on the property. The 1997 Net Operating
Income after interest expense of the remaining property, The Greenhills Bicycle
Club Apartments, was $395,000.
NOTE L--SUBSEQUENT EVENT
As of December 31, 1997, the Partnership was in negotiations with the
mortgage holder on KC Club Apartments concerning a restructure of that debt.
More favorable interest rates and possible principal write downs were under
consideration. Due to the inability to restructure the debt, on January 7, 1998
the property was lost to foreclosure.
The assets and liabilities as of December 31, 1997 that were applicable to
the foreclosed property approximated the following:
Investment properties, net of accumulated depreciation $3,388,000
Other assets 84,000
Mortgage payable, including accrued interest (3,992,000)
Other liabilities (259,000)
Rental revenue for the KC Club Apartments for the year ended December 31,
1997 was $853,000 while operating expenses (including interest) were $1,160,000.
26
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONT'D
NOTE M--DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying values reflected in the balance sheets at December 31, 1997
reasonably approximate the fair values for cash and cash equivalents. The
Partnership cannot estimate the fair value of its borrowings collateralized by
the KC Club Apartments at December 31, 1997 as there is no readily available
market value for instruments with similar characteristics. The estimated fair
value of the borrowings collateralized by the Bicycle Club Apartments
approximate the carrying values.
(The remainder of this page is left blank intentionally)
27
<PAGE>
Item 9. Changes in and Disagreements with Registrant's Certifying
Accountants on Accounting and Financial Disclosure.
None.
Part III
Item 10. Directors and Executive Officers of the Registrant.
The General Partners of the Partnership are James R. Hoyt (individual), SIR
Partners III, L.P. (partnership) and Nichols Resources, Ltd. (corporation).
Nichols Resources, Ltd. (a corporate General Partner) is a Missouri
corporation formed on August 22, 1988 for the purpose of acting as a general
partner of public real estate programs and otherwise investing in and dealing
with limited partnerships, property management and the real estate syndication
business. Nichols Resources, Ltd. was a wholly-owned subsidiary of the J.C.
Nichols Company until January, 1998. It is now a wholly-owned subsidiary of MJS
Associates, Inc., a Missouri corporation with executive offices located at 1100
Main Street, Ste 2100 Kansas City, Missouri 64105. MJS Associates, Inc. acquired
all of the outstanding stock of Nichols Resources, Ltd. in January 1998 from
J.C. Nichols company. Nichols Resources, Ltd. issued 15,000 shares of common
stock for $1,500,000 on August 22, 1988.
James R. Hoyt ( Managing General Partner), age 60, holds a Bachelor's
Degree in Business Administration and is a licensed real estate broker in two
states. Mr. Hoyt has been actively involved for more than the past twenty years
in various real estate endeavors including development, syndication, property
management and brokerage.
Mr. Hoyt is the Managing General Partner and sponsor of Secured Investment
Resources Fund, L.P. (S.I.R.) and Secured Investment Resources Fund. L.P. II
(S.I.R. II). Since 1983, Mr. Hoyt has been involved as the Individual General
Partner in ten specified real estate private placement offerings. As of December
31, 1997, these partnerships, including Secured Investment Resources Fund, L.P.
III, have raised a total of $60,709,750.
SIR Partners III, L.P. f/k/a Hoyt Partners III, L.P., (a limited
partnership General Partner) is a limited partnership organized on February 23,
1988 under the statutes of the State of Missouri. James R. Hoyt is the General
Partner. The Partnership was formed for the purpose of acting as a general
partner and acquisition agent of Secured Investment Resources Fund, L.P. III.
Item 11. Management Compensation
During 1997, The Partnership paid $137,445 in fees to related parties for
property management services. The Partnership also paid $42,707 to related
parties for professional services as described in Note E.
28
<PAGE>
Item 12. Security ownership of Certain Beneficial owners and Management
(a) Security Ownership of certain beneficial owners.
No individual or group as defined by Section 13 (b) (3) of the Securities
Exchange Act of 1934, known to the registrant is the beneficial owner of more
than 5 percent of the registrant's securities.
(b) Security ownership of Management.
The General Partners do not own any limited partner units, although
together they own a 1% general partnership interest in the Partnership. As of
September 1, 1998, officers and directors of Nichols Resources, Ltd. as a group
beneficially own 20 limited partnership units of the Partnership, which
represent less than 1% of the outstanding limited partner units.
(c ) Change in Control.
On July 21st, 1998, Nichols Resources Ltd., a general partner of the
Partnership ("Nichols"), Bond Purchase, L.L.C. ("Bond") and David L. Johnson
("Johnson ") and other affiliates of Johnson, along with the Partnership, SIR
Partners III, L.P., General Partner of the Partnership ("SIR Partners III"),
SPECS, Inc., the company which provides the Partnership management and investor
services ("SPECS") and James R. Hoyt, Managing General Partner of the
Partnership ("Hoyt"), entered into a certain Settlement Agreement and Mutual
Release (the "Agreement"). The Agreement settled a dispute which had arisen
between Nichols, SIR Partners III and Hoyt, general partners of the Partnership
over the proper course of action to be taken for the Partnership. This dispute
resulted in the filing of a civil action in the Circuit Court of Jackson County,
Missouri.
Pursuant to the Agreement, Nichols has agreed (i) to pay $100,000 in cash
to SIR Partners III and Hoyt, $21,751 of which will be paid by Hoyt to the
Partnership to pay a receivable owed by affiliates of the Partnership for unpaid
excess syndication costs and expenses currently shown on the Partnership's
financial statements and (ii) to dismiss the civil actions filed. In exchange
for the $100,000 in cash and the dismissal of the civil actions, SIR Partners
III and Hoyt have agreed (i) to transfer their General Partnership interests to
Nichols and (ii) to withdraw as Managing General Partner and general partners.
Under the Partnership's Amended and Restated Agreement of Limited Partnership
dated December 6, 1988 (the "Partnership Agreement"), such transfers and
withdrawals are subject to the majority vote of the Partnership's limited
partners (the "Limited Partners"). Hoyt and SIR Partners III have also agreed
that Nichols,
29
<PAGE>
Item 12. Security ownership of Certain Beneficial owners and
Management --Cont'd
as general partner of the Partnership, shall have the right to designate the
management company to manage the assets of the Partnership and to execute all
documents to effectuate the release of the current management contract.
Nichols, as a general partner of the Partnership, intends to call for a
vote without a meeting of the Limited Partners, file a proxy statement with the
Securities and Exchange Commission and solicit proxies from the Limited Partners
to seek approval from the Limited Partners to the transfer of the general
partnership interests, the withdrawal of Hoyt and SIR Partners III as general
partners of the Partnership and the replacement of Hoyt as Managing General
Partner in favor of Nichols. Hoyt and SIR Partners III have agreed to use their
best efforts to assist in obtaining approval from the limited partners of the
withdrawal of Hoyt and SIR Partners III as General Partners of the partnership.
In the event the majority approval is obtained, Nichols shall be the sole
general partner of the Partnership.
Item 13. Certain Relationships and Related Transactions.
See Notes to Financial Statements, Notes E, F and G appearing in Item 8.
(The remainder of this page left blank intentionally)
30
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a)(1) The following Financial Statements of Secured Investment Resources
Fund, L.P. III, are included in Item 8:
SECURED INVESTMENT RESOURCES FUND, L.P. III Page
(i) Independent Auditors' Report 11
(ii) Consolidated Balance Sheets - December 31, 1997
and 1996 12-13
(iii) Consolidated Statements of Operations - Years Ended
December 31, 1997, 1996, and 1995 14
(iv) Consolidated Statements of Partnership Deficit -
Years Ended December , 1997, 1996, and 1995 15
(v) Consolidated Statements of Cash Flows - Years
Ended December 31, 1997, 1996, and 1995 16-17
(vi) Notes to Consolidated Financial Statements 18-27
(a)(2) The following Financial Statement Schedules as part of this
report:
(i) Schedule II - Allowance For Doubtful Accounts
Information 34
(ii) Schedule III - Real Estate and Accumulated
Depreciation 36-37
All schedules other than those indicated in the index have been omitted as the
required information is presented in the financial statements, related notes or
is inapplicable.
31
<PAGE>
(a) (3) The following Exhibits are Incorporated by Reference and are an
integral part of this Form 10-K.
Exhibit Number Description
(3) (a) Amended and Restated Agreement
of Limited Partnership. (iii)
(b) Certificate of Limited
Partnership. (i)
(4) (a) Form of Subscription Agreement. (iii)
(b) Form of Certificate evidencing units. (i)
(10) (a) Property Management Agreement
As amended. (ii)
(b) Escrow Agreement between the Partnership and
The Mission Bank. (i)
(c) Real Estate Contract of Sale for the Brywood
Hills Apartments. (iv)
(d) Real Estate Contract of Sale for The
Greenhills Bicycle Club (formerly Candlewyck
Apartments). (v)
(e) Deed of Trust and Promissory Note for Brywood
Hills Apartments. (vii)
(f) Deed of Trust and Promissory Notes for Greenhills Bicycle
Club (formerly Candlewyck Apartments). (vii)
(16) (a) Letter regarding change in certifying accountant. (vi)
(25) (a) Power of Attorney. (i)
(26) (a) Secured Investment Resources Fund, L.P. III Financial Data
Schedule at December 31, 1997 and for the year then ended.
(28) (b) Guarantee of General Partners. (i)
32
<PAGE>
(i) Previously filed on September 13, 1988 as
an Exhibit to the Statement on Form S-11 (file
no. 3324235) such Exhibit and Statement
incorporated herein by reference.
(ii) Previously filed on December 7, 1988 as an
Exhibit to Amendment #1 to registration Statement
of Form S-11 such Exhibit and Registration Statement
incorporated herein by reference.
(iii) Previously filed on December 7, 1988 as part of
Amendment #1 to Registration Statement and
incorporated herein by reference.
(iv) Previously filed as an exhibit to a current report
on Form 8-K dated June 12, 1989 which exhibit and
Form is incorporated herein by reference.
(v) Previously filed as an exhibit to a current report
on Form 8-K dated October 30, 1989 which exhibit and
Form is incorporated herein by reference.
(vi) Previously filed as an exhibit to a current report
on Form 8-K dated December 4, 1989 which exhibit
and Form incorporated herein by reference.
(vii) Filed herewith.
(b) Report of Form 8-K filed during the fourth quarter.
A Form 8-K was filed on July 31, 1998 (file no.
000-18475), such Form 8-K incorporated herein by
reference.
(c) See Exhibit Index contained herein.
(d) See (a)(2) above.
33
<PAGE>
Secured Investment Resources Fund L.P. III
Schedule II - Allowance for Doubtful Accounts
December 31, 1997
Balance at Bad Debt Write Balance at
Beginning of Charged to Offs Deducted End
Period Operations From Allowance of Period
------------ ---------- -------------- ---------
For Years Ended December 31,
1995 $ 7,814 $ (664) $ -- $ 7,150
1996 $ 7,150 $ 4,850 $ -- $ 12,000
1997 $ 12,000 $ 62,400 $ 58,200 $ 16,200
(the remainder of this page left blank intentionally)
34
<PAGE>
SIGNATURES
Pursuant to the Securities Exchange Act of 1934, the Registrant has duly
caused this report to be signed on its behalf by the undersigned hereunto duly
authorized.
Secured Investment Resources
Fund, L.P., III, a Missouri limited
partnership (Registrant)
Date: October 22, 1998 By: Nichols Resources, Ltd., its
general partner
By: /s/ Christine A. Robinson
Christine A. Robinson
President
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO
SECTION 15(d) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES
PURSUANT TO SECTION 12 OF THE ACT.
No annual report or proxy material has been sent to security holders during
the Registrant's last fiscal year, but an annual report and proxy material will
be furnished to security holders subsequent to the filing of the annual report
on this form.
Signature Title Date
/s/ James R. Hoyt Individual general partner October 26, 1998
James R. Hoyt of the Registrant
/s/ David L. Johnson Director of Nichols Resources, October 22, 1998
David L. Johnson Ltd., a corporate general
partner of the Registrant
/s/ John W. Alvey Director of Nichols Resources, October 26, 1998
John W. Alvey Ltd., a corporate general partner
of the Registrant
/s/ Daniel W. Pishny Director of Nichols Resources, October 22, 1998
Daniel W. Pishny Ltd., a corporate general partner
of the Registrant
35
<PAGE>
<TABLE>
Secured Investment Resource Fund , LP III
Schedule III - Real Estate & Accumulated Depreciation
December 31, 1997
<CAPTION>
Initial Cost to Partnership (a) Subsequent to Acquisition
----------------------------------- ---------------------------
Building & Furniture Reduction
Encumbrances Land Improvement Equipment Improvements of Basis (b)
------------ ------- ----------- --------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Garden Apartments:
KC Club Apartments 3,922,211 0 4,775,465 295,527 195,464 (216,021)
Kansas City, MO
Green Hills Bike Club 8,422,249 430,937 9,988,057 832,619 379,597 (576,842)
Kansas City, MO
Other Equipment 0 0 0 0 12,180 0
---------- -------- ---------- --------- --------- --------
TOTAL 12,344,460 430,937 14,763,522 1,128,146 587,241 (792,863)
=========== ======== =========== ========== ======== =========
<CAPTION>
Gross Amount at Which
Carried at Close of Period
--------------------------------------------------------------
Building & Furniture Accumulated Date Depreciation
Land Improvements Equipment Total Depreciation Acquired Life
------ ------------- ---------- ------ ------------- --------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Garden Apartments:
KC Club Apartments 0 4,641,246 409,189 5,050,435 1,662,423 06/30/89 30 Yrs(1)
Kansas City, MO 5 Yrs(2)
Green Hills Bike Club 407,226 9,542,531 1,095,611 11,045,368 3,599,391 10/27/89 30 Yrs(1)
Kansas City, MO 5 Yrs(2)
Other Equipment 0 0 12,180 12,180 12,180 5 Yrs(2)
--------- ------------ ----------- ----------- -----------
TOTAL 407,226 14,183,777 1,516,980 16,107,983 5,273,994
========= =========== =========== =========== =============
<FN>
(1) Estimated useful life of buildings
(2) Estimated useful life of furniture and fixtures
NOTES:
(a) The initial cost to the Partnership represents the original purchase
price of the properties, including $205,562 and $145,578 of
improvements incurred in 1988 and 1987, respectively, which were
contemplated at the time the property was acquired.
(b) Receipts received under the terms of certain guarantee agreement are
recorded by the Partnership as a reduction of the basis of the property
to which guaranteed income relates.
</TABLE>
36
<PAGE>
<TABLE>
Secured Investment Resource Fund , LP III
Schedule III - Real Estate & Accumulated Depreciation
December 31, 1997 --CONT'D
(c) reconciliation of Real Estate Owned:
<CAPTION>
Buildings & Furniture &
Total Land Improvement Equipment
-------------- ------------ ---------------- ---------------
<S> <C> <C> <C> <C>
Balance at January 1, 1995 15,775,013 407,226 14,132,554 1,235,233
Additions during year:
Reclassification 0 0 0 0
Improvements 164,484 0 21,756 142,728
-------------- ------------ ------------- -----------
Balance at December 31, 1995 15,939,497 407,226 14,154,310 1,377,961
Additions during year:
Improvements 102,145 0 8,163 93,982
-------------- ------------ ------------- -----------
Balance at December 31, 1996 16,041,642 407,226 14,162,473 1,471,943
Additions during year:
Improvements 66,341 0 21,304 45,037
-------------- ------------ ------------- -----------
Balance at December 31, 1997 16,107,983 407,226 14,183,777 1,516,980
============== ============ ============= ===========
(d) Reconciliation of Accumulated Depreciation:
Balance at January 1, 1995 3,695,423 0 2,574,786 1,120,637
Additions during year:
Depreciation Expenses 507,242 437,578 69,664
-------------- ------------ ------------- -----------
Balance at December 31, 1995 4,202,665 0 3,012,364 1,190,301
Additions during year:
Depreciation Expenses 529,408 435,991 93,417
-------------- ------------ ------------- -----------
Balance at December 31, 1996 4,732,073 0 3,448,355 1,283,718
Additions during year:
Depreciation Expenses 541,921 462,547 79,374
-------------- ------------ ------------- -----------
Balance at December 31, 1997 5,273,994 0 3,910,902 1,363,092
============== ============ ============= ===========
(e) The total gross amount of real estate at December 31, 1997 includes
$566,888 of acquisition fees paid to affiliates.
</TABLE>
37
<TABLE> <S> <C>
<S> <C>
<ARTICLE>5
<MULTIPLIER>1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 317,315
<SECURITIES> 0
<RECEIVABLES> 23,547
<ALLOWANCES> 16,200
<INVENTORY> 0
<CURRENT-ASSETS> 689,461
<PP&E> 16,107,983
<DEPRECIATION> 5,273,994
<TOTAL-ASSETS> 11,617,003
<CURRENT-LIABILITIES> 562,148
<BONDS> 12,344,460
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 11,617,003
<SALES> 0
<TOTAL-REVENUES> 2,986,744
<CGS> 0
<TOTAL-COSTS> 1,473,324
<OTHER-EXPENSES> 605,175
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,112,421
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (204,176)
<EPS-PRIMARY> (20.87)
<EPS-DILUTED> 0
<PAGE>
</TABLE>
